A company, as a concept, is a contract whereby two or more people pool their assets, work, or both to share the profits generated by this collaboration. Thus, company shareholders are motivated by the willingness to cooperate, pursuing its corporate purpose, in principle, equally.
However, despite the willingness to maintain this collaboration, relationships between shareholders may deteriorate. This is because the influence of minority shareholders is limited to the proportion of their shareholding, which can be damaging if the majority shareholders abuse or monopolise their control in the company. Therefore, to avoid conflicts or tensions between shareholders, it is essential to recognise the rights of minority shareholders.
Concerned about the protection of minority shareholders in capital companies, the Spanish legislator, through the provisions of the Royal Legislative Decree 1/2010, of 2 July, which approved the revised text of the Spanish Companies Act, has sought to protect the weaker party by enabling them to take part effectively in the company. The aim is to ensure the continuity of the company through a balance between majority and minority shareholders. This balance is achieved through the rights that the Spanish Companies Act confers on minority shareholders.
These include the rights to:
- Obtain documentation and information
- Request a notary at the meeting to record the minutes
- Attend the General Shareholders’ Meeting
- Request the appointment of an auditor
- Withdraw from the company
- Challenge corporate resolutions
This article distinguishes between the rights of minority shareholders in Public Liability Companies and Limited Liability Companies. It offers an updated overview of protecting minority shareholders in Spanish Corporate Governance (1) Legislation to support and improve their position in companies.
The rights of minority shareholders depend on the proportion of the share capital they hold, although the law frequently allows them to group to achieve the required representation percentage.
Rights of minority shareholders in Public Liability Companies
Shareholders with less than 5% of the share capital:
- Right to attend the General Shareholders’ Meeting (art. 3 and 179.2)
- Right to request a notary at the meeting to record the minutes (art. 203.1)
- Right to withdraw (art. 346)
- Right to object to corporate resolutions approved by the General Meeting (art. 204)
Shareholders with at least 5% of the share capital:
- Right to obtain documentation and information (art. 197)
- Right to initiate a corporate liability action (art. 239.1)
- Right to request the calling of the General Meeting (art. 168)
- Right to request the appointment of an independent expert (art. 69b)
Shareholders with at least 25% of the share capital:
- Right to convene the General Meeting and to request an extension (art. 193.1)
- Right to obtain documentation and information without the possibility of refusal by the directors (art. 197.4)
Rights of minority shareholders in Limited Liability Companies
Shareholders with less than 5% of the share capital:
- Right to obtain documentation and information (art. 196)
- Right to request a notary at the meeting to take minutes (provided they represent at least 1% of the share capital) (art. 203)
- Right to request the appointment of an auditor (art. 265.1), when:
- The General Meeting has not appointed an auditor before the end of the financial year to be audited
- The appointed person does not accept the post or is unable to perform his or her duties
- Right to withdraw
- Right to object to corporate resolutions (art. 206)
Shareholders with more than 5% of share capital:
- Right to initiate a corporate liability action (art. 238)
- Right to request the calling of a General Meeting (art. 168)
- Right to request the appointment of an auditor (art. 265.2)
Shareholders with at least 25% of share capital:
- Right to obtain documentation and information without the possibility of refusal by the directors (art. 196.3)
The suspension of art. 348 bis of the Spanish Companies Act was lifted on 1 January 2017. Since then, minority shareholders may withdraw from the company when the General Meeting has agreed not to distribute dividends or distribute them in an amount of less than one-third of the profits obtained in each financial year with the vote against minority shareholders.
Mahi Shah & Ahmed Eddebbagh
If you need additional information on minority shareholders’ rights in a Spanish company, contact us.
(1) Rules, principles and procedures regulating the structure and functioning of a company governing bodies.
